Pharma Takes Aim at New Legal Foe: State Drug Affordability Boards

Prescription drug affordability boards (PDABs) have been rising in popularity as a way for states to tamp down on soaring drug prices. But a recent lawsuit filed by one drugmaker and public remarks from the industry’s main trade group make it clear that the pharma sector sees such boards — and the price caps some are authorized to set — as a major threat.

In a suit filed on March 22, Amgen Inc. takes aim at Colorado’s Prescription Drug Affordability Review Board, which is the closest to becoming the first state board to set an upper payment limit (UPL) on a drug. The state in late February initiated formal rulemaking to set a UPL for Enbrel (etanercept), Amgen’s rheumatoid arthritis treatment, after determining it was unaffordable.

Amgen’s lawsuit claims that the Colorado board’s decision to set a UPL for Enbrel — and the state law on which it was based — “are unconstitutional because they conflict with federal law, violate basic requirements of due process, and impermissibly seek to regulate [commerce] outside of Colorado.” Therefore, the drugmaker is asking the Colorado district court to block the UPL process for Enbrel.

Colorado is one of five states whose PDAB has the authority to set UPLs for select drugs. Maryland, Minnesota, Washington and Oregon also have that authority, experts said during a Feb. 27 Manatt Health webinar about the state of PDABs.

Two states, Massachusetts and New York, give their PDABs the authority to negotiate supplemental rebates for drugs covered by Medicaid. And three states — Maine, New Hampshire and New Jersey — only give their PDABs the authority to recommend drug spending targets and cost-control strategies to their state legislatures. Meanwhile, another 15 states are considering legislation to set up a PDAB, noted Jonathan DiBello, manager at Manatt Health.

All told, “2024 is really shaping up to be a big year for PDABs, reflecting widespread interest in the affordability of prescription drugs and a variety of approaches that are being taken to address that issue,” Michael Kolber, a partner at Manatt Health, said during the webinar.

And that rising interest in PDABs is spooking the pharmaceutical industry.

“We are very concerned that when states are using government price setting in the form of an upper payment limit…patients might not be able to access their medicine,” Leslie Wood, regional vice president of state policy at the Pharmaceutical Research Manufacturers of America (PhRMA) said during the Manatt Health webinar.

During her remarks, Wood likened some PDABs’ moves to set UPLs to the Medicare drug price negotiation program that is part of the Inflation Reduction Act (IRA). The Biden administration and drugmakers are currently negotiating what will become the new maximum fair prices for the first 10 medicines selected to be included in that program, effective in 2026.

“We already know that the Medicare drug negotiation program, authorized by the Inflation Reduction Act, will affect how companies plan for research and development and bringing new medicines to patients over time,” Wood said. She cited a PhRMA poll of drug manufacturers in late 2022, which found that 78% of responding companies said the Medicare drug price negotiation program would likely cause them to cancel early-stage pipeline projects, among similar findings.

Setting upper payment limits on drugs targeted by PDABs, Wood added, “will only worsen this impact over time.”

State PDABs Vary Their Tactics

Wood’s comparison of PDABs and the IRA is not unwarranted. Enbrel, the drug that Colorado’s PDAB plans to give a price cap, was also selected as one of the first 10 drugs included in the Medicare drug price negotiation program. And Johnson & Johnson’s Stelara (ustekinumab), which made the initial list of drugs slated for Medicare price negotiation, is expected to receive an affordability review vote by Colorado’s board on April 26.

Oregon took a different tactic, as the state deliberately did not select IRA-negotiated drugs for its affordability reviews, DiBello noted during the webinar. Oregon’s board is now conducting reviews on 12 drugs and three insulin products, and its PDAB must provide the state legislature with a plan to establish UPLs by Sept. 15.

Maryland, which was the first state to enact PDAB legislation with the authority to set UPLs, recently identified drugs that are eligible for an affordability review and is poised to select drugs for those reviews in the coming months, according to DiBello. Maryland’s UPL can apply to drugs purchased by state/local governments or Medicaid — the narrowest set of drugs among the four states with UPL authority.

Washington’s board is required to identify eligible drugs for UPLs by June 30 but can do so sooner. Its authority applies to drugs purchased by all payers except self-funded plans, excluding drugs that have been on the market for less than seven years, infusion drugs and rare disease drugs.

Minnesota’s UPL authority, like Colorado, encompasses the widest set of drugs — including those purchased by all payers except Medicare and self-funded plans. But Minnesota is the least far along of the five states that can set UPLs; as legislation establishing its PDAB was just passed in May 2023, it still has yet to establish its board.

Potential Legal Issues Abound

Although Manatt’s webinar was held before Amgen filed its lawsuit against Colorado’s PDAB, its presenters were well aware that state affordability boards could face litigation. Indeed, during his presentation Kolber explained some of the potential tactics that legal challenges to PDABs could take.

One example involves the Commerce Clause of the U.S. Constitution, which the Amgen suit accuses Colorado of violating. The gist is that only Congress — not states — can regulate interstate business, Kolber explained.

But “where the case law is on this area is not as clear cut as that, and there are some state actions that can have effects on interstate commerce that may not be unconstitutional. So where exactly the line is will be important,” he said.

A Maryland law aiming to prevent price-gouging on generic drugs was struck down due to a Commerce Clause violation, Kolber noted, because it attempted to regulate prices set by drugmakers and wholesalers based outside the state. UPLs appear designed to regulate just the prices that are paid for drugs within states, potentially giving them better legal cover. Still, those regulated prices “will have inevitable impacts on the entire supply chain, and depending on how that plays out, there may be issues there,” Kolber said.

Kolber also described two other potential challenges to UPLs that are based on the 14th Amendment — the Due Process Clause and the Takings Clause — both of which Amgen ended up citing in its lawsuit.

The Due Process Clause centers on whether property holders are being deprived of their property without, for example, adequate hearings. The Takings Clause concerns whether government entities are providing reasonable compensation when seizing private property.

There’s also questions about whether state PDABs interfere with federal patent laws, ERISA and the FDA’s right to regulate prescription drugs, Kolber said. In its lawsuit, Amgen accuses Colorado’s PDAB of violating the Constitution’s Supremacy Clause because it conflicts with federal patent laws.

It is unclear how Amgen’s lawsuit, and any others like it that arise, will fare. But the pharmaceutical industry’s legal challenges targeting the Medicare drug price negotiation program have so far been unsuccessful. A federal judge rejected AstraZeneca’s challenge of the IRA provision on March 1, and a judge in February threw out a joint lawsuit filed by PhRMA, the Global Colon Cancer Association, and the National Infusion Center Association. Additionally, in late 2023 an Ohio district court judge denied the U.S. Chamber of Commerce’s motion for a preliminary injunction to stop implementation of the program.

This article was reprinted from AIS Health’s biweekly publication Radar on Drug Benefits.

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© 2024 MMIT
Leslie Small

Leslie Small

Leslie has been working in journalism since 2009 and reporting on the health care industry since 2014. She has covered the many ups and downs of the Affordable Care Act exchanges, the failed health insurer mega-mergers, and hundreds of other storylines spanning subjects such as Medicaid managed care, Medicare Advantage, employer-sponsored insurance, and prescription drug coverage. As the managing editor of Health Plan Weekly and Radar on Drug Benefits, she writes and edits for both publications while overseeing a small team of reporters who also focus on the managed care sector. Before joining AIS Health, she was a senior editor for the e-newsletter Fierce Health Payer, and she started her career as a copy editor at multiple local newspapers. She graduated with a dual degree in journalism and political science from Penn State University.

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